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Succession planning; what does exiting your business mean?

Succession planning

Succession planning

Succession planning for business owners is critical. When most business owners think of an exit plan, they think of selling the business. This act of selling the business and exiting or leaving the business is also called ownership succession.

In order to ensure this process is done to the level of satisfaction of all parties, the incumbent business owner must make sure the new owners are able to continue the business successfully.

The more the new owners believe they can continue to run the business without the previous owners, the more valuable is the business.

So for a successful ownership succession to take place, the business must not be reliant on the current business owners. To achieve this, we need to implement a management succession plan.

Policies and procedures, a good business model, and good key employees who do not rely on the existing business owners to perform their regular tasks will all be part of this plan.

This management succession plan should be implemented well before the time of exit to be effective. This plan should ensure the business will be able to function efficiently and profitably without the business owner’s involvement, and all key decisions and roles can be performed.

The management succession plan starts with the identification of all key roles and decisions that are made by the business owner and then identifying and training key staff that would be competent and capable of performing these activities.

Sometimes, recruitment externally might be required or the role of the business owner may be shared by two or more people.

Remember also that you are building a long-term plan. So think about the life cycle of the employee before expensive and exhaustive training, coaching and remuneration are considered.

One of the great outcomes of a good management succession plan is a reduction in stress for the current business owners.

The better the policies and procedures, the better and clearer the strategic plan, and the better skilled and competent the employees, the easier the business is to run.

Ownership Succession

Ownership succession is a plan that helps the business owner transfer ownership to a third party. This transfer should be seen as a successful outcome for both the outgoing and incoming business owners.

Ownership succession is executed at the time of transfer or sale of the business.

Transferring control to employees can be highly emotional and complicated. It can also lead to immediate issues in profitability if it is not handled correctly.

Business owners, therefore, need to make sure they are recruiting the right people for the team and/or training or coaching them into the roles required to one day survive without the business owners. This is better done in a methodical planned manner. This will also lead to a better business and create more time for the business owner.

In cases of a business owner’s forced exit due to death, disability or sickness from the business, a management succession plan is critical for business continuity and sustainability of future profits.

Hire staff for your business – How do I decide?

If succession planning is not in place, the day-to-day management of the business could be transferred to poorly trained or ill-equipped employees who will drive the value of your business down.

Management Succession

Management succession is a plan that helps the business to be less reliant on the business owner and requires the key employees to perform all critical functions of the business.

It is important to note that management succession is broader than the definition of exit planning. We have limited it to the scope of exit planning for this discussion.

Management Succession or exit planning should be implemented or executed years before the transfer or sale of the business.

Business owners find it hard to let go of the reins. The “I can do it better than anyone else” syndrome is typical amongst business owners.

Too often, the steps of delegation and training employees to take over duties of the owners is missed until just before exit when it is too late!

An effective exit and succession plan should form part of the overall business strategy

Next time I will discuss what happens when you get it wrong.

Author: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory.

Business Advisor and Compass Business Advisory Founder Kathleen Dale in Townsville North Queensland
Image: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory
Image: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory


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Kathleen Dale
Kathleen has a Bachelor of Commerce and a Major in Business Law and employment law. Kathleen is working on her honors in Occupational Health & Safety & Environment Management and Human Resource because Kathleen believes these areas give Compass Business Advisory an opportunity to give clients the best possible outcomes. Kathleen's experience is vast from a union delegate to a safety officer. Kathleen is a specialist in Small to Medium business, has personally owned and sold her own successful businesses and business compliance is her specialty.

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